Denis Kiselev, Blockchain at the Core

Denis Kiselev is the co-founder of SnapSwap – a startup building innovative financial solutions that allow consumers and businesses to participate in the global economy by bringing down barriers such as cost, complexity and processing delays. Licensed as an Electronic Money Institution, SnapSwap offers its services to financial institutions, businesses and individual customers in all member states of the EU.

Soon after launching a mobile payment application, Gloneta, SnapSwap began focusing on offering innovative solutions for banks and other businesses, including services such as remote onboarding, payment infrastructure and blockchain-based issuing of electronic money instruments.

Being operational with an EMI licence for less than a year, SnapSwap managed to build partnerships with leading players in payments and trust services, such as WorldLine in France, SIBS in Portugal and LuxTrust in Luxembourg. The company has been admitted to the Global Entrepreneurs Accelerating Program of Ernst & Young and to FbStart, a global startup acceleration program from Facebook.

Paul Helminger, the former Mayor of Luxembourg and the Chairman of Intesa Sanpaolo Bank Luxembourg, has joined SnapSwap as the Chairman of the Board. George Schmit, former Consul General of Luxembourg in San Francisco and the Executive Director at the Luxembourg Trade & Investment Office, has been appointed to the SnapSwap Advisory Board.

After having relocated to Luxembourg from San Francisco a year ago, Denis Kiselev shared his thoughts on the local tech ecosystem and future ambitions of the startup.

Denis, what is your background?

My university degrees are in Computer Science and Economics. After graduating from Ohio State University, I worked as a researcher and then began my career in financial services at the World Bank in Washington (DC). While still in university, I worked part-time as a software developer, and ever since then kept my interest in technology. Pursuing my career in finance, I always dreamed of moving into the world of technology innovation. One sunny day, about 20 years after my first day at the World Bank, I left the world of established institutions to dedicate my time to the exciting universe of fintech startups.

How do you come up with ideas?

What we are building is based on our own experiences and our knowledge of financial services. Take for example the issue of customer onboarding. As a customer, I hate the way banks and other businesses treat me when I want to open an account. I hate the user experience and the waste of time. Going to an office, waiting in line, filling out and signing tons of papers – come on, we are in the 21st century! What I want is a fast and reliable process that I can complete on my phone or tablet from the convenience of my home. This is how we came up with the idea of a remote automated onboarding solution for banks, the investment industry and other businesses. We realized that banks are losing customers. Over 50% of new customers drop out during onboarding. And they also lose money, because manual processes are so expensive and inefficient.

How did you land in Luxembourg?

In 2012 we established a company in Seattle, Washington. It was called SnapSwap and that’s how we started to gather a team of engineers working with new technologies in financial services. Our goal wasn’t to create a new technology. At that time, there were a lot of developments around bitcoin and other cryptographic algorithms; the idea of distributed ledgers for financial transactions had just begun to gain traction in various implementations. Everybody was creating some kind of cryptocoin and putting them in along with algorithms and protocols. So we decided to take the existing technologies and see how we could implement them to build useful services for customers that were compliant with regulations. In the area of financial services, compliance is a very important component! Now this area is known as RegTech, Regulatory Technology. And in this business “Reg” is as important as “Tech”, or even more important.

“We decided that we wanted to get the license and establish a regulatory relationship in Europe where the legal framework for financial innovations is well defined and rapidly developing.”

Society expects providers of financial services to be reliable, regulated, trusted and to be compliant with the government requirements of knowing their customers and preventing money laundering and terrorist financing. Since the early 2000s, the general consensus is that financial transactions should be transparent and financial institutions should hold the role in preventing the usage of financial networks for illegal activities. For us, in order to reach out to a product audience and offer our services outside the closed community of people deeply entangled in cryptocurrencies, we had to become a regulated financial institution.

We decided that we wanted to get the license and establish a regulatory relationship in Europe where the legal framework for financial innovations is well defined and rapidly developing. For example, in the U.S., if you are not a bank and want to provide financial services, you have to get a license in every single State that you wish to service. To serve one country you need to get 46 licenses and establish 46 relationships with 46 different regulators. In Europe, with the European directive on payment services (PSD), a company can establish a relationship with one regulator, get a license, and passport it to all the other countries in the European Union. That’s why we decided to come to Europe.

Back in 2014, I undertook a tour around Europe meeting regulators in the UK, the Baltic states, Cyprus, Malta and other EU member states, because I wanted to be sure that our regulator partner would not be intimidated by our innovation and provide the demanded support. On my shortlist were London and Luxembourg. We decided on Luxembourg and so far we think it’s the right decision. The regulator, the CSSF, is very supportive of upcoming innovative technologies. It’s still time consuming to explain what we are doing, to prepare all the necessary documents and to go through the meetings, but we have good established cooperation and support.

Then we needed to establish a physical presence in Luxembourg and that was our intention from the beginning. I moved to Luxembourg in February 2016 with my family. My CTO, Natalia, moved from Amsterdam to Luxembourg later that year. We hired new people in Luxembourg in areas such as compliance, business development, marketing and customer support. The focus of our attention now is bringing our core developers to Luxembourg as well in order to have our R&D facility here in Luxembourg.

Are you enjoying Luxembourg so far?

We find the environment and the startup ecosystem very lively here. We have our office at the Lux Future Lab incubator in the city-center of Luxembourg. First of all, the incubator is supported by BGL BNP Paribas, one of the leading banks in Luxembourg. Being a part of the startup incubation program allows us to access the bank’s expertise and services that are not available for an outsider. The cooperation that we have established with the bank is mutually beneficial, we are offering new business ideas and new solutions to improve the bank’s services and add value to its’ customers.

Lux Future Lab provides us with a nice and flexible office space. We had the chance to meet a wide range of partners supporting us in accounting, consultancy and HR management. In that sense, the Lux Future Lab is solidly structured and enables us to keep concentrated on our core activities such as developing the products and promoting them to our prospective clients, without distraction. The incubator is growing at a fast pace with a very interesting community of startups and we’ve had good interactions with our colleagues and are supporting each other.

“If a project requires a blockchain solution, we issue electronic money instruments on a blockchain to facilitate settlements and transactions.”

We also had a chance to participate in a series of events organized by Silicon Luxembourg and other major players in the startup ecosystem. We have been admitted to the EYnovation program of Ernst & Young Luxembourg, which has helped us to accelerate our business. Thanks to it, we now have access to expertise when questions arise regarding taxation and the legal framework. Weare enjoying Luxembourg and its ecosystem helps bring new opportunities to us daily.

Due to Luxembourg’s geographical position in Europe, we now have the opportunity to reach out to key business hubs such as London, Paris, Frankfurt and Brussels. As a Luxembourg startup, we have great access to Benelux discussions and initiatives in the area of payments.

Being connected with Luxembourg startups allowed us to meet interesting entrepreneurs with smart projects here. There is never a lack of passion or ideas.

How can we boost the local ecosystem and fintech in particular?

There are several issues that need to be addressed. The first one is the access to funding and the availability of capital. If you compare the European Union with the United States, the EU economy is bigger both in GDP and in market size. However, venture capital investments in the U.S. in 2015, for example, accounted for 72.4 billion USD, while in Europe it was only 13.5 billion USD — five times less.

Luxembourg has an outstanding track record in creating the legal and operational framework for the traditional investment funds industry. Over last twenty years it has become a world’s fund capital attracting capital and human resources from all over the world. Now there is a great opportunity to boost the venture capital ecosystem and to achieve leadership in this area.

The availability of talent and fundamental research for innovative technologies are also important components. Stanford University, with its active role, has been an essential ingredient in the development of Silicon Valley. Hence, it is essential to boost the involvement of the University of Luxembourg, its academic staff and students with the startup ecosystem. For example, we regularly welcome interns from UNI and other universities to join us for learning and working with us.

An encouraging trend is the growing involvement of established businesses with the startup community. Acceleration programs like Lux Future Lab by BGL BNP Paribas allow for interconnection and cross-fertilization between startups and “grown-ups.”

What is your business about?

As a financial institution, we develop innovative solutions that we first offer to our customers and then to other businesses. We are focused on the B2B market, where B2B means bank-to-bank or bank-to-business. Take, as an example, our Remote Onboarding Solution. First developed for our own online banking app, it is now in great demand by banks and other industries.

Remote Onboarding is a unique fully automated solution for onboarding customers in compliance with anti-money laundering and the “know your customer” requirements remotely via a personal mobile device (a phone or a tablet) or on a personal computer. Integrated in a mobile app or an internet site, Remote Onboarding allows the verification of the customer’s identity, collection of KYC data, performance of due diligence and the obtaining of a legally binding electronic signature. The service is fully automated end-to-end and it is available 24/7 at a fraction of the cost of manual onboarding.

Many industries in Europe and abroad are required to comply with anti-money laundering, counter-terrorist financing and “know your customer” requirements. Remote Onboarding provides banks, insurance companies, investment industry, telecoms and other businesses with an advanced solution that satisfies customers’ expectations of seamless modern user experience and is compliant with current and upcoming regulations – PSD2, the new AML directive, data privacy rules and others.

Remote Onboarding is an automated solution that replaces manual processes with precise technologies satisfying the highest standards of security. Due to full automation, banks and other businesses can now stay open for new customers 24/7 and allow new customers to complete initial onboarding in less than six minutes from their homes or even on the go.

Together with the Onboarding Solution, we offer payments as a service, with online opening of current accounts with individual IBAN numbers, processing SEPA, wire, cards and other forms of payments.

If a project requires a blockchain solution, we issue electronic money instruments on a blockchain to facilitate settlements and transactions. We do it in full compliance with European regulations; our blockchain assets are fully backed by liquid reserves in the most reliable Luxembourgish banks. We can provide this service since SnapSwap is the first EMI in Europe that is authorized to work on crypto protocols.

Our established cooperation with research teams at the University of Luxembourg allows us to be on top of the development in this fast growing, promising sector of financial and regulatory technologies.

Can you tell us more about blockchain?

Blockchain technology is now used with a wide range of terms. Sometimes when people talk about blockchain, they think about some new databases and technologies that allow you to manage all kinds of documents and information in a distributed manner. In that sense, I would say that it’s kind of a good headline for the innovations that are coming to financial technologies and, in general, business technologies.

Broadly speaking, blockchain refers to a database management technology that stores and updates the data on a distributed rather than centralized ledger. Every participant of a blockchain has a copy of the database, and this copy is always updated.

The update procedure is decentralized. In traditional database management, it is the central administrator who updates the data. He is also responsible for the consistency of the data.

The blockchain process is defined by an algorithm that allows any participant of the blockchain to introduce an update to the database. There is a consensus algorithm that guarantees the agreement between all participants or the majority that the updates are legitimate and not malicious.

We, as a group of engineers and specialists, looking at particular technologies, see how we can use them to deliver better services – for example, would it be possible to have customer identification available, not only for us, but other interested institutions, or can we use a kind of blockchain solution to make this information available to and controlled by the users? These are the kind of things we are working on and explain why it is important for us to be part of the blockchain initiative in Luxembourg – Infrachain Consortium. We think that with our experience we can deliver practical use cases and instruments at a very early stage to make sure that all this technological development and accumulation of knowledge creates a tangible and practical network.

What do you think about the relationship between startups and established institutions?

Being in B2B business makes it critical for us to build relationships and deliver value to established businesses. Though it’s a challenging proposition, we work with more than 30 banks and other businesses with multi-billion euro balance sheets and tens of millions of customers. We have to be adaptable and reliable as a partner. Our deep knowledge of financial services helps us understand the issues that our clients are facing in their operations and to design and deliver the best possible solutions at lower costs and with easy integration into existing systems.

What we see are very capable teams overloaded with legacy issues. Usually they can design outstanding products. However, when we come with a solution that is “plug-and-play” with full compliance support on current and upcoming regulations, we see a very enthusiastic response.

In our solutions, a regulatory compliance component is essential. Since we are subject to the same AML and KYC requirements and the same data privacy protection rules, we always speak the same language with our clients. This allows our clients to conduct integrations in a very efficient manner and introduce innovative technologies into their products and services much faster.

This article was first published in the Spring 2017 issue of SILICON magazine. Be the first to read SILICON articles on paper before they’re posted online, plus read exclusive features and interviews that only appear in the print edition, by subscribing online.

Charles-Louis Machuron founded Silicon Luxembourg in October 2013. Charles-Louis strives to profile and promote startups and entrepreneurial activity in Luxembourg - and beyond - because he believes the future belongs to those who take risks to change the status quo.